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Journal of Law and Financial Management - Volume 4 (1) June 2005

Volume 4 (1) June 2005

Managers, Contracts and Good Faith - Challenging the Community Expectations Myth

By Tyrone M Carlin


Contracts represent a key device for governing and intermediating commerce. As such, a body of contract law which produces outcomes in accordance with the expectations of commercial actors is a key factor in determining the risk and thus costliness of conducting business within a particular jurisdiction. Both commercial practice and the law of contract change over time. Examples of the former include the increasing recourse to outsourcing, alliances and partnering arrangements while a topical example of the latter represents the growing debate (in Australia) about the existence and role of good faith performance obligations in contract. Proponents of the latter doctrine have asserted that the growing reliance on relational commercial forms evident in business operations means a need for good faith norms within contract. Further, they assert that the commercial community expects and desires this norm shift. This paper describes evidence which provides a contrary view. In short, it is argued that managers place a high degree of value on contractual certainty and look warily at doctrines which would appear to subvert certainty in favour of other values.

Re-Examining the Role of Accounting, Contracts and Trust in Inter-Organisational Networks

By Suresh Cuganesan


In contrast to the popularity of network organisational forms as a means of conducting business, there is growing evidence of failure amongst these arrangements. Despite a significant amount of research on the topic, a number of gaps exist in relation to the trust-formal control relationship and the mechanisms by which trust is produced. This paper theoretically examines the trust-formal control nexus, considering both contracts and accounting control mechanisms equally and how these interact with trust mechanisms. In contrast to prior literature which posits a substitutive relationship, the means by which formal controls can both complement and substitute for trust are outlined, with the implications for law, accounting and organisational practitioners identified.

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The Trouble with M.E.R - The Disclosure of Fees and Charges in Australian Investment Superannuation Funds

By Nigel Finch


Investors and advisers see the Management Expense Ratio (MER) as a useful means of comparing the cost of investing in one superannuation or investment fund against another. This paper, however, contends that the MER is an unreliable and naive method of fee disclosure that does not allow a uniform comparison between funds. This is because there is no consistency in the definition of management expenses for the purpose of the MER calculation, and due to variations in the methods used to calculate funds under management. In all, five significant issues are identified that reveal the MER is an unreliable tool for investment decision making. Using a hypothetical investment fund, the distortion on MER is illustrated between funds when taking account of differing asset valuation techniques, changes in the periodicity of fee calculation, and the growth in funds under management. This variance is evaluated using the Growth Distortion Model. The paper proposes a new framework for fee disclosure, the Performance Cost Ratio, which overcomes the current deficiencies in Australian investment fund fee disclosure.

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